The government is losing about Rs 265 crore (Rs 2.65 billion) of service tax collections annually in the top 20 towns due to cable operators under-declaring the number of subscribers.

These numbers have been submitted to the regulator, the Telecom Regulatory Authority of India, by various stakeholders in the cable industry, including broadcasters and multi-system operators. These are based on the information collected from the tax departments of various state governments.

The government's service tax collection from cable homes in 2007-08 was around Rs 28 crore (Rs 280 million), about the same as last year, even as the industry added about 15 million subscribers in the last two years, said industry sources.

The cable operators have maintained that as neither broadcasters nor MSOs invest in improving their cable delivery infrastructure, they have to find ways to generate their own revenue.

This means of the 14 million subscribers in these towns, service tax was paid for only 1-1.2 million homes, also causing revenue losses to broadcasters and MSOs, say industry experts.

Delhi, Mumbai, Kolkata and Chennai accounted for nearly 65 per cent of the leakage, according to the data.

Trai has made it mandatory for cable operators to issue receipts for bill payments.

"However, cable operators collect cash without issuing the bills mentioning the taxes levied, leading to under-reporting of cable numbers," says a senior executive in a Delhi-based MSO.

For example, Delhi has 2.6 million declared cable homes, and a monthly fee of Rs 150 means annual revenue of about Rs 470 crore (Rs 4.7 billion), on which the service tax liability comes to Rs 58 crore (Rs 580 million). But the service tax collected from cable operators in 2007-08 stood at Rs 5.57 crore (Rs 55.7 million), a shortfall of Rs 52.45 crore (Rs 524.5 million). Similar losses were reported in Kolkata, Chennai and Mumbai.

The solution to the problem, according to several industry experts, lies in faster digitalisation of cable services.

"Look at the direct-to-home operations. There are no leakages there. Similarly, once CAS and the HITS distribution platform become reality, the under-reporting of subscriber numbers will go away," says a senior executive of Essel Group, a company that is a broadcaster, a DTH operator as well as an MSO.